Orbán Unlikely to Revise Nationalist Economic Policies

Hungary’s ruling nationalists won’t take the European Commission’s advice to pursue a more liberal policy.

Hungarian prime minister Viktor Orbán listens to a debate in the European Parliament in Brussels, January 18, 2012
Hungarian prime minister Viktor Orbán listens to a debate in the European Parliament in Brussels, January 18, 2012 (European Parliament/Pietro Naj-Oleari)

Despite recommendations from the European Commission to improve its business climate, Hungary’s government is unlikely to revise its nationalist economic policies. Prime Minister Viktor Orbán said earlier this month, “I think what we are doing is successful.”

Orbán has reason to be optimistic. His country’s economy expanded .7 percent in the first three months of this year, but after it contracted through 2012. At the end of last year, Hungary’s economy was still almost 10 smaller than before the downturn in 2009.

The right-wing government responded to the crisis by shutting out foreign companies and investors and raising taxes on some industries to mend its budget shortfall.

Although Hungary is now likely to keep its deficit under the 3 percent treaty limit, in its policy recommendations (PDF) released on Wednesday, the European Commission said the decision to target individual industries had raised “questions about the sustainability of the consolidation efforts.”

Especially because the tax burden is increasingly uneven, with energy and telecommunication companies as well as supermarkets facing sectoral surtaxes, and regulations have changed so much, Hungary’s business environment has “constantly deteriorated” since Orbán was elected prime minister in 2010, according to Brussels. Energy companies have been forced to cut their electricity bills. Foreign investment has been curtailed.

The European Commission is also worried about the independence of the judiciary — constitutional reforms passed in 2011 limited the supreme court’s powers and annulled its previous rulings — and observes that banking oversight is still lacking more than four years after the financial crisis began in the United States.

In late 2011, American rating agencies downgraded Hungarian sovereign bonds to junk status citing the country’s “increasingly erratic” and “unorthodox” economic policies as well as concerns over the independence of its central bank. Central bank board members are now appointed by Orbán personally. He put his former finance minister, György Matolcsy, who designed Hungary’s nationalist economic program, at its helm in March.

Even if Hungarians’ living standards, about 66 percent of the European Union average, haven’t improved since Orbán came to power, some of his policies, including the lower electricity bills, have kept consumer confidence up and inflation down.

Fat Mathilde cites the policy in Magyar Nemzet newspaper as proof that Hungary has provided adequate consumer protection, whatever the European Commission says. “I wonder what else could protect the consumer if not prices?”

Commentators in the business daily Világgazdaság are more critical. Nicholas Hegedus, an energy research company director, laments that the government’s economic policies are “increasingly moving away from the truth.” The European Commission also cautions that Hungary’s growth estimates are “somewhat optimistic.”

However, Nicholas Újvári argues in the same newspaper that the EU’s attempts to force Hungary to change course haven’t paid off. Orbán, he adds, is still favored to win the next election, scheduled to take place early next year.

Orbán’s popularity plummeted through the economic crisis from a 45 percent high at the time of the last election to 24 percent in an opinion poll last month. But that still puts him far ahead of the opposition.

Leave a reply